Unlike most of the world, we export more food than we import in Canada. Only a handful of other countries in the Organization for Economic Co-operation and Development – Australia, New Zealand and Chile – have such large and positive trade balances in food, relative to the size of their economies. This means that we gain significant benefits from trade. Canada’s agricultural and food processing industry is much larger than if we were only serving our domestic market.
However, our similarity with these other net food exporting countries ends there. Canada still maintains very high trade barriers on all dairy products, chicken and eggs, as well as high barriers on wheat and barley.
Australia, New Zealand and Chile all impose much lower trade barriers to food imports than we do. Dairy products in Canada face an eye-watering tariff of 247 per cent, on average. This figure towers above the tiny combined average tariff for Australia, New Zealand and Chile, which stands at just 4.1 per cent. The difference is not as great for cereals, but it is still significant – tariffs in Canada average 20 per cent, compared with 3.4 per cent in those three countries.
These barriers take the form of tariff rate quotas, which consist of applying high duties on imports above a certain threshold, thus limiting the quantity of imports entering the country. Fewer imports reduce competition, which means less variety of products for Canadians – and higher prices in the supermarket. Canadians pay 50 per cent more for their milk than the average price in OECD countries.
Higher barriers on food imports have not only raised prices and limited product choices for Canadians, they have also held us back from signing free-trade agreements with certain developing countries – which represent an enormous market for food exporters. New Zealand and Chile each have an FTA with China. And Australia and New Zealand are both part of an FTA with the members of the Association of Southeast Asian Nations, while Canada has not started free-trade negotiations with any of these countries. The only major emerging market with which Canada is currently negotiating is India, as well as the Trans-Pacific Partnership that includes developed and developing countries.
According to the Conference Board of Canada report “Liberalization’s Last Frontier: Canada’s Food Trade,” the largest benefit to Canada’s food sector would come from improved access to these markets, particularly through the implementation of free-trade agreements.
However, improved access to emerging markets inevitably comes at a price. That price is significantly reducing our import tariffs, including those that protect our supply-managed commodities. Canada has recently been under pressure from both the European Union and the TPP to do just that.
In the longer run, even Canadian dairy and poultry farmers might benefit from freer trade. Because of our current supply management system, the amount of dairy and chicken products we can export is very limited. But reform coupled with trade liberalization could unlock growth opportunities for dairy and chicken farmers – especially in emerging markets, where the bulk of demand growth lies.
If we decide to maintain our current trade barriers on food, we must live with the inevitable consequences: Reduced opportunities for the food industry, and less variety and higher prices for the average Canadian consumer.
It is sometimes easy to forget how all of us benefit from trade. Without importing coffee, Canadians would be left with nothing but Timbits to wake themselves up. If we lowered our trade barriers, imagine what other possibilities Canada could wake up to.
Kristelle Audet is an economist with the Conference Board of Canada and author of “Liberalization’s Last Frontier: Canada’s Food Trade.”